Refi of Primary home no longer deductible? What about house hack?

4 Replies

Hey all,

So if I'm understanding this aspect of the new tax law, the mortgage interest is only deductible on ACQUISITION debt for your primary residence... correct? Meaning if I get into a house with a higher interest rate for whatever reason and a year or so down the road my credit situation is much better and I want to refi for a better rate that new mortgage interest will no longer be deductible? 

Now here's a slight caveat: What if I am house hacking and renting out two of three bedrooms? 

@Fausto Carosella  

The new law did not change the deduction related to the itemized deduction for qualified residence interest on the original or refinanced loan. It just disallowed the interest deduction on the home equity loans. 

Qualified Acquisition debt also includes debt used to refinance earlier debt on the primary residence's, but only to the extent of the original debt amount. 

Regarding house hack:

The 1/3 of the Interest related to two bedrooms would be deductible as interest expense against your rental income.  1/3 would be your  Itemized deduction if you dont take the Standard Deduction.  Remember you cannot deduct more expense than your income for a househacked property, meaning there cannot be a rental loss. 

@Ashish Acharya

Ah, ok.. I see. So theoretically if my only refinance "goal" is to lower the interest rate, than the interest is still deductible as opposed to if I refi to take money out and payoff credit cards... that interest would not be deductible when according to the old law it would be?

Originally posted by @Fausto Carosella :

@Ashish Acharya

Ah, ok.. I see. So theoretically if my only refinance "goal" is to lower the interest rate, than the interest is still deductible as opposed to if I refi to take money out and payoff credit cards... that interest would not be deductible when according to the old law it would be?

 True, but if you use that extra cash to other rentals or other income porducing activities, they are deductible.